Those members in the minority preferred to up the rate to 1.25%.

This is the fourth consecutive increase since the bank cut the rate to 0.1% two years ago as a result of the coronavirus pandemic.

Global inflationary pressures have intensified sharply following Russia’s invasion of Ukraine, which, according to the Bank of England, has led to a material deterioration in the outlook for world and UK growth.

Twelve-month CPI inflation rose to 7% in March — around one percentage point higher than expected in the February report — and is predicted to rise further over the remainder of the year to just over 9% in 2022 Q2 and averaging slightly over 10% at its peak in 2022 Q4.

Industry experts react to Bank of England interest rate increase

Tomer Aboody, director of property lender at MT Finance: 

“This rate rise was fully anticipated by the markets due to the need to manage soaring inflation; it will help cap some excess spending by consumers, although many have been cutting back where they can in the face of rising bills and the wider cost of living. 

“Mortgage pricing is edging upwards, but many lenders up until this point have not passed on previous rate rises in full due to a highly competitive market. 

“If they want to attract business, they need to absorb some of the rate increases — the question is, how long will they be prepared to do this for?”

Jeremy Leaf, north London estate agent and a former RICS residential chairman: 

“This rate rise has seemed almost inevitable for some time now, bearing in mind increases in the cost of living; for that reason, most of the people we are in touch with at the sharp end have almost built in the uplift into their calculations when making decisions about buying and selling property.

“Certainly, the overwhelming majority of existing homeowners are benefiting from fixed-rate mortgages and are not under immediate pressure to move products, so would not be immediately affected.

“Of course, once again it’s first-time buyers who seem to be clobbered on all sides by rising rents, higher interest rates and more stringent lending criteria; yet while they often come off worse, they are so vital to the successful operation of the housing market, not only at the bottom of the ladder, but connected in chains right to the top.”

Mark Harris, chief executive at SPF Private Clients: 

“With the markets already pricing in this rate rise, it comes as no surprise; lenders have increased mortgage rates in recent weeks with little or no notice, making it difficult for borrowers as any hesitation may mean missing out on the best deals.

“Even with this latest rise, we remain in a low interest rate cycle and expect that to be the case indefinitely.

“Those borrowers on variable-rate deals may want to consider taking out a fixed-rate mortgage – while these are getting more expensive, some of the longer-term fixes are particularly competitively priced. However, borrowers must be careful not to fix for longer than they are sure about or may incur a hefty ERC to get out of the mortgage early.

“Activity in the remortgage market is brisk, with some borrowers considering paying the penalty to leave their existing deal early in order to secure another product before prices rise further. 

“This can be worth doing, but it is important to ensure any savings you make to your mortgage payments outweigh the costs involved; rates can be booked up to six months before they are required and we are getting a lot of interest from motivated borrowers in doing this.”

Richard Pike, sales director at Phoebus Software: 

“Another base rate rise means lenders will have to update their systems again and send out letters to borrowers who are on variable-rate mortgages.

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“However, for those due to remortgage, they may well find themselves having to take a higher rate. 

“Brokers could be approaching their clients earlier and advising them to apply for a new fixed rate, which will be valid for three or six months, depending on the lender. 

“By locking into a lower rate now, rather than waiting to apply when their current deal comes to an end, borrowers should end up with a better deal.”

Vikki Jefferies, proposition director at PRIMIS:

“The continued rise in interest rates poses major questions for the millions of homeowners who have bought at rock-bottom rates in recent years, especially those on a two-year fix, who could be in for a shock in the coming months. 

“Brokers will now need to be more proactive than ever to secure the best outcomes for their customers — this is particularly the case for those who have complex financial situations, and brokers should act quickly to help these customers to find the most appropriate and affordable products that fit their current circumstances.”

Douglas Grant, group CEO at Manx Financial Group:

“We believe that demand for working capital is set to soar to unprecedented levels, as more businesses desperately require liquidity provisions to counteract rising interest rates, supply chain issues, increases in wages and additional pandemic-induced headwinds — with the cost of borrowing set to increase, many SMEs are struggling and will continue to be challenged this year.

“Having successfully deployed multiple relief schemes (BBLS, CBILS and RLS) for SMEs throughout the pandemic, the UK government should, in our opinion, now turn their attention towards a permanent loan scheme to help leverage businesses going forward. 

“Now is a vital time for the government to work together with traditional and alternative lenders to guarantee the future of our SMEs and to ensure the successes of these emergency schemes are not wasted.

“In this post-pandemic era, many SMEs are at a critical tipping point, some between failing and surviving, others between surviving and thriving. As the government looks for ways to power the economy’s resurgence, the importance of a permanent scheme cannot be understated — it could act as the fundamental difference between make or break for many companies, and in turn, our economy. 

“SMEs would be well-advised to take stock of their current capital structure and if appropriate, access fixed-term, fixed-rate loans to prevent additional exposure to an increasingly volatile lending market.”

Ed Rimmer, CEO at Time Finance:

“No sooner are businesses adjusting to soaring costs, do these rise once again, making financial planning almost impossible; this isn’t just putting strain on day-to-day cashflow, it is also curtailing businesses’ investment in growth and that will have a much greater economic impact further down the line.

“Our research has shown that due to soaring costs, inflation and supply chain issues, many business owners are having to increase their own costs, some by up to a staggering 30% — for those businesses, this is a necessary move if they want to remain afloat, but it will only serve to amplify the domino effect this has on our economy and perpetuate the cost of living crisis. 

“Ultimately, the government must look at both immediate and long-term support for businesses to overcome the challenges they are facing and in doing so, they will stimulate economic growth, which in turn will enable businesses to increase their wage bills to help combat the rising cost of living. 

“The lending industry is working tirelessly to provide finance solutions that inspire growth and confidence, but we alone cannot solve the problem.

“In the spring statement, the Chancellor promised a lot to businesses in the coming Budget. We all wait with anticipation to hear in October exactly what the government intends to do to support skills and innovation, but it is clear that action is needed right now. 

“Waiting until the autumn Budget will only serve to stunt economic growth further — supporting businesses now is a necessity.”